Harris Teeter helps Kroger’s earnings surge 23%

Kroger executives on Thursday credited Harris Teeter with helping boost its results, just over a year after the Cincinnati grocer acquired the Matthews-based chain.

The biggest grocery store chain in the country, Kroger reported better-than expected fourth-quarter earnings Thursday as it snatched up customers from competitors and built on existing business from Harris Teeter and Vitacost.com, a Florida-based e-commerce site selling vitamins and groceries that Kroger purchased in July.

Kroger didn’t break out Harris Teeter’s contribution numerically but said the grocery chain helped reduce its debt and added more earnings per share than it had expected.

Kroger’s earnings in the fourth quarter that ended Jan. 31 surged 23 percent from the same period a year before to $518 million, or $1.04 a share. Analysts surveyed by Bloomberg had estimated earnings of 90 cents a share.

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“For the 10th year in a row, we lowered costs and reinvested those savings to improve our store experience. It is no surprise that Kroger captured more share of the massive food market also for the 10th year in a row,” Mike Ellis, Kroger’s president and chief operating officer, said in a conference call with investors.

After the merger last year, Harris Teeter lowered prices on thousands of items, a move it said was made possible by “better efficiencies” from the Kroger acquisition.

Charlotte’s grocery competition continues to heat up, with Florida-based Publix in the second year of its expansion into North Carolina. Publix operates 10 stores in the Charlotte area and plans to open five more by 2016, including one in South End that’s slated to open soon. That heightened competition means customers might sometimes see a Publix and Harris Teeter within a mile of one another.

Citing the competitive Charlotte grocery landscape as an example, Mike Schlotman, Kroger’s chief financial officer, said the company assumes that competition in all its markets will only get fiercer.

“We built a model to defend our turf no matter where those folks try to come,” Schlotman said.

Kroger said it is already incorporating lessons learned from Harris Teeter, notably in terms of e-commerce.

“E-commerce is a great example of an area Harris Teeter is helping Kroger grow,” Keith Dailey, Kroger’s media relations director, wrote in an email to The Observer. “We are testing Harris Teeter’s successful ExpressLane concept – an order online, pick up at the store model – at a Cincinnati-area store. Our intention is to eventually add a similar model to several more stores in Cincinnati, and then test it in other markets as well.”

In some areas such as its large fresh and prepared foods section, Harris Teeter has done a “historically better job” than Kroger, Dailey said, and that makes Kroger more competitive overall.

“What Kroger likes to do when they buy a finely run retailer like Harris Teeter is don’t fix what isn’t broken,” said Chuck Cerankosky, an analyst at Northcoast Research.

For all of 2014, Kroger’s revenue rose to $108.5 billion, an increase of 10.3 percent over the year before. Excluding fuel, revenue rose 12.9 percent. Earnings for 2014 totaled $1.73 billion, or $3.44 a share, the company said.

The Vitacost and Harris Teeter mergers, Kroger’s CEO Rodney McMullen said in the call Thursday, present “meaningful growth opportunities for Kroger.” Kroger now employs about 25,000 people more than it did at this time last year, McMullen said, and its current workforce totals about 400,000.

Harris Teeter has more than 50 stores in the Charlotte area, where it employs about 7,000 people, said Danna Jones, a Harris Teeter spokeswoman. In 2014, the grocery chain opened nine new stores and anticipates adding another nine in 2015 in North Carolina, South Carolina and Virginia.

In total, Harris Teeter operates more than 220 stores in eight states and the District of Columbia, according to its website.

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